| Kaiser Watch October 2, 2024: Which Favorite will triumph by year end? |
| Jim (0:00:00): How have the 2024 KRO Favorites done at the end of the third quarter? |
As a group the 11 companies in my 2024 Favorites Collection were down 15.9% as of September 30, 2024. The highest was up 10.5% on May 17 and the lowest was down 22.3% on September 10. During the same period gold is up 26.5% while the TSXV Index is up 5.1%. It is a dismal performance in absolute and relative terms. It really makes me wonder what value I create through the weekly or sometimes bi-weekly Kaiser Watch. I am currently working on an IT experiment whose goal is to make the Kaiser Research web site very fast which is necessary if I am going to market it as a research tool in 2025 at $200 per month. If this works I will give everybody a chance before the end of the year to sign up for 2025 at USD $450. As far as the dismal performance of the 2024 KRO Favorites are concerned, this KW Episode will look at what we might expect from the individual companies by the end of 2024. |
| Jim (0:01:25): What has dragged down your KRO Favorites Collection this year? |
The main cause for the poor performance are the three lithium juniors who are 27% of the index. Brunswick Exploration Inc is the worst, down 77.7%, followed by Patriot Battery Metals Corp down 58%, and Winsome Resources Ltd down 45.7%. Their flagship projects are all in the James Bay region of Quebec. The price of lithium carbonate and spodumene concentrate is half what is needed, not just to mobilize new lithium supply to meet net zero emission goals by 2030, but even to keep existing bedrock mines in operation.
Sentiment toward the lithium sector and the energy transition will not turn positive until we know the outcome of the US election, and that may not happen until 2025 because the Republican Party has already declared that any outcome other than a victory for Trump is a stolen election, a position that Shady Jaydy confirmed during the vice-president debate. Trump's declaration that climate change is a hoax and his groveling support for the fossil fuel sector guarantee that if the electoral college delivers a tyranny of the minority the EV sector will be stalled for some time. I do not expect any help from the three lithium Favorites during the fourth quarter but they may represent fantastic bottom-fishing opportunities during December's tax loss season.
Brunswick is still an exploration junior which has yet to deliver any game changing results this year. A 5,000 m summer drill program was initiated at Mirage, but from the description of its scope I do not expect news of a substantially expanded pegmatite footprint. Brunswick has chewed through $1.8 million in overhead during the first six months, including nearly $500,000 on investor relations. Brace yourself for a dilutionary flow-through financing by year end or a rollup deal merging various James Bay players with rollback haircuts for all. Both Patriot Battery and Winsome have delivered PEA level economic studies for JackieChoo and Adina whose NPV and IRR clear development hurdles, but only because they used spodumene concentrate prices double current spot prices. KW Episode September 6, 2024 takes a close look at Patriot Battery's Corvette PEA. I have not had a chance yet to look closely at Winsome's Adina scoping study, but it also uses a base case price double current spot levels. The current low lithium carbonate and spodumene concentrate prices are not sustainable unless the lithium ion battery ceases to power electric vehicles, something I view as unlikely. The western market is obsessed with spot prices, and currently it is contemplating a potential de facto ban on electric vehicles in the United States under a possible Trump administration. The rest of the world will continue to embrace EVs produced mainly by China whose EV sales are already 38% of domestic car sales. A big question is what role Canada will end up playing in the supply of the rest of the world's lithium needs if the United States is not going to be a consumer. We need to see an election outcome that favors energy transition goals to see a revival of interest in the EV sector and the question of where future lithium supply is supposed to come from. |
Brunswick Exploration Inc (BRW-V)
Favorite
Fair Spec Value |
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| Mirage |
Canada - Quebec |
3-Discovery Delineation |
Li |
Patriot Battery Metals Corp (PMET-T)
Favorite
Fair Spec Value |
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| Corvette |
Canada - Quebec |
4-Infill & Metallurgy |
Li |
Winsome Resources Ltd (WR1-ASX)
Favorite
Fair Spec Value |
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| Adina |
Canada - Quebec |
4-Infill & Metallurgy |
Li |
Charts for lithium carbonate and concentrate (6% spodumene) prices |
| Jim (0:06:40): How have your non-gold exploration juniors done? |
The three key non gold exploration Favorites are Canalaska Uranium Ltd for uranium, Hercules Metals Corp for copper, and PJX Resources Inc for zinc-lead-silver. Canalaska is only down 8.1% and this year it has delivered the most promising drill results of the three juniors. The focus has been on the Pike Zone on the Wewst McArthur project within a graphitic pelite corridor at the unconformity between the sandstone of the Athabasca Basin and the basement rock. Until last week Canalaska was delivering radiometric readings only for a narrow slice of the uranium enriched corridor, which has limited the market's ability to do back of the envelope estimates for an emerging tonnage footprint. I have done an Outcome Visualization which shows what a McArthur clone (1,062,000 t @ 16.46%) mined at 200 tpd would be worth at the current U3O8 price of $81.88/lb. That number is nearly CAD $7 billion which would translate into a future Canalaska stock price of $27.30. The IPV chart shows that the market is pricing West McArthur at the low end of the fair speculative value range for such a future outcome still at the discovery delineation stage. The $0.70 stock price and implied $178 million value (100% basis - Canalaska is at 83.3%) makes it clear that the Pike Zone has not attracted S-Curve activity. This means that the market does not yet believe Canalaska can deliver a McArthur clone.
It looked like the summer drilling program was off to a good start, as discussed in KW Episodes July 12, 2024July 19, 2024. Canalaska has the ability to release real time radiometric eU3O8 assays, and with two quick news releases the geometry of the Pike Zone was begininning to take shape. But then Canalaska pulled down a cone of silence which it did not lift until two months later with a press release on September 17. Unfortunately that was only about more holes within the narrow slice across the uranium enriched corridor. Given the policy of releasing real time radiometric assays, this was not very good news, because the absence of eU3O8 updates implied that stepout holes were coming up empty. The hope for a McArthur clone outcome was beginning to fade.
Then on September 26 Canalaska released 4 holes with very high uranium grades at the unconformity 100 m to the southwest of the initial Pike Zone slice. These holes were drilled during the past six weeks, and, despite their importance, were not released as radiometric assays as the core ended up in the box and the probe was dropped down the hole. The market has responded only modestly to this stepout news, perhaps because there are 3 earlier modest grade holes that appear to have tested at least part of the middle of this 100 m segment. Drilling has now stopped for the season, but will resume in early January 2025 with two rigs, increasing to three rigs with the goal of adding additional fences across the unconformity corridor within this 100 m segment, as well as stepping out to the northeast and south west. There are no more radiometric assays to come, just the geochemical assays confirming the eU3O8 assays. Canalaska hopes to be in a position to deliver a maiden resource estimate during H2 of 2025.
What is clear is that Canalaska has changed its strategy of real time assay reporting, which may be a good idea because in batching holes in a new segment of the mineralized corridor Canalaska gives the market a chance to see what has been accomplished in 3 dimensions rather than isolated fragments spread over time. If followup drilling can connect these two segments with high grade mineralization at the unconformity, the world class scale of this discovery will hit a perceptual tipping point and we will get S-Curve market action. Uranium itself has sunk to $82/lb which is still fine for Athabasca Basin style high grade deposits, and the sentiment toward nuclear energy remains positive, regardless of the US election outcome. |
Canalaska Uranium Ltd (CVV-V)
Good Spec Value |
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| West McArthur |
Canada - Saskatchewan |
3-Discovery Delineation |
U |
Hercules Metals Corp (BIG-V)
Favorite
Fair Spec Value |
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| Hercules |
United States - Idaho |
3-Discovery Delineation |
Cu Mo Ag |
PJX Resources Inc (PJX-V)
Fair Spec Value |
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| Dewdney Trail |
Canada - British Columbia |
2-Target Drilling |
Zn Pb Ag |
Price Charts for Uranium, Copper and Zinc |
Implied Value Charts for West McArthur visualized as a McArthur outcome |
Pike Zine comparsion between September 17 and 26 news releases |
Drill Plan showing location of pending drill holes at Hercules |
| Jim (0:16:17): What about your two gold exploration juniors, Arizona Gold and Solitario? |
Arizona Gold & Silver Inc is down 23.9% thanks to the extraordinary sluggishness of the BLM permitting system. The Philadelphia project in Arizona has reached a stage where there really is nothing left to drill on the strip of patented claims that cover the high grade Philadelphia vein. Arizona Gold needs to step onto BLM ground to the east in order to intersect the downdip extension of the vein and make the high grade underground mineable resource grow bigger. These holes will pass through a hanging wall area which they call the Red Hill target that has the potential to host a bulk tonnage gold system. The company has drawn comparisons with the Silicon deposit in Nevada where AngloGold has outlined over 4 million ounces. The target has a tonnage footprint of 40-100 million tonnes which at an average grade of 1.5 g/t gold would host 2-5 million ounces gold.
The BLM did not grant permits for building road access and two drill pads until early June, with the extra stipulation to make sure no gopher tortoises were lurking in the vicinity. By the time that was done in early July a heat dome had settled over Arizona. With the temperature at lethal levels Greg Hahn refused to let drilling start, hoping for a cooling trend. I discussed the situation in KW Episode August 1, 2024, as well as the implications of the bankruptcy of Elevation Gold Mining Corp which died because the 0.4 g/t grade at the nearby Moss Mine was just too low. Well, temperatures have not dropped in Arizona. In fact in the East Bay this week we are enduring a temperature range of 100-110 Fahrenheit.
Without drilling nothing can change at Philadelphia, so the market lost interest over the summer. On September 18 the company bit the bullet with a 10 million unit financing at $0.30 with a full 3 year warrant at $0.40, which the company boosted to $4.6 million on September 30. Autumn has begun and temperatures will drop, even in Arizona, so I expect the junior will finally start drilling during the next couple weeks. Fortunately there are no seasonal constraints at Philadephia, and if assays confirm the bulk tonnage potential by December, Arizona Gold could be off and running, helping overcome the deadweight of the lithium Favorites.
I talked about Solitario Resources Corp, which is up 21.1%, extensively last week with regard to its Golden Crest maiden drill program in KW Episode September 25, 2024. Solitario is in the midst of a 12 hole drill program seeking geological context in the third dimension for the high gold values at surface. The highest surface values were at the Downpour target in the eastern part of the initial Golden Crest Plan of Operations approved by the USFS this year. What was missing from the assays for the first 3 holes was a mineralized crosscutting structure that fed these lithologically controlled zones. So more vectoring holes are needed in this area. The rig is now testing targets in the western part where gold values are weaker at surface but pathfinder elements such as arsenic and antimony are very elevated. The gold at Golden Crest is micron sized and the Paleozoic sediments appear to be oxidized all the way to the Proterozoic basement rocks at about 400 m depth. So the core in the box will yield no visual secrets. The rest of the dozen holes planned this year could thus deliver big surprises which send Solitario soaring by year end. The market, however, seems to have settled into a stance of waiting for next year when the company hopes its Ponderosa Plan of Operations will be approved by the USFS. The surface gold values in the eastern part of Golden Crest covered by the Ponderosa POO application are phenomenal. Unless the remaining holes in the current drill program deliver a barnburner hole, the stock could be an excellent accumulation target in December. However, in November we should find out if Nexa is going ahead with a major drill program at the Florida Canyon zinc-lead-silver project in Peru. The market currently assigns zero value to Solitario's 30% carried interest in Florida Canyon because the perception is that Nexa is in no hurry to develop it. A major drill program testing peripheral targets to see what longer term resource delineation potential exists would signal that Nexa is getting serious about Florida Canyon. |
Arizona Gold & Silver Inc (AZS-V)
Favorite
Fair Spec Value |
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| Philadelphia |
United States - Arizona |
3-Discovery Delineation |
Au Ag |
Solitario Resources Corp (SLR-T)
Favorite
Fair Spec Value |
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| Golden Crest |
United States - South Dakota |
2-Target Drilling |
Au |
Comparison of Red Hill model with AngloGold's Silicon deposit |
Drilling strategy at Philadelphia on permitted BLM land |
| Jim (0:22:58): How have your advanced gold junior Favorites, Vista Gold and West Vault, done? |
The upside for West Vault Mining Inc and Vista Gold Corp hinges on what the price of gold is doing, or better said, what the market thinks gold will continue to do. West Vault is up 9.5% while Vista Gold, the most recent addition to the Favorites Collection is up 46.4%, the best performer at the end of the third quarter. Both companies have permitted shovel-ready gold deposits with recently updated economic studies. I have reproduced their ore schedules and cost figures in a spreadsheet and used the discounted cash flow (DCF) model to see what happens at different gold prices as high as $4,000 per oz. West Vault's Hasbrouck has a CAD NPV per share range of $3.21-$4.53 for 10% to 5% discount rates using $1,800 as a base case gold price, which soars to a range of $8.13-$10.68 at the current gold price of $2,648 per oz. Although West Vault's NPV and IRR clear development hurdles even at $1,800 gold, its stock price is $1.02. Vista Gold's Mt Todd project has a USD NPV per share range of $4.21-$8.73 for 10% to 5% discount rates also using $1,800 as a base case gold price, jumping to $16.30-$25.97 at the current spot price. Like West Vault's Hasbrouck, Vista Gold's Mt Todd clears NPV and IRR hurdles at the base case price, and fabulously so at the current spot price. So why is the market ignoring the fundamental value of these two companies which should be trading 3-5 times higher current levels?
One reason, and this is reflected by the overall weak market response among resource juniors with an advanced gold focus, is that the market does not believe the current gold price and higher is a new reality. It seems to expect a plunge back below $2,000. KW Episodes August 23, 2024 and September 25, 2024 I offer reasons for this skepticism and why I think we are in the midst of a fundamental upwards repricing of gold into the $3,000-$4,000 range regardless the outcome of the US election. The other reason specific to West Vault and Vista Gold resides in the difference and similarity of the Hasbrouck and Mt Todd projects. The market thinks Hasbrouck's 72,000 oz per year projected production is too small to attract the interest of even an intermediate gold producer (100,000-500,000 oz annual production). And the market thinks Mt Todd's 400,000 ounce annual production at $1 billion CapEx is too big for an intermediate producer. The similarity between the two deposits, namely a grade below 1 g/t, is the reason a major is unlikely at this early stage of a secular gold bull market to be interested in acquiring and developing Mt Todd.
For ordinary investors such as those who monitor Kaiser Watch episodes the current price of both juniors is an incredible bargain, provided you accept the premise that gold is in the midst of a sustainable fundamental repricing in real terms, not just a harbinger of future inflation that would turn Hasbrouck and Mt Todd back to marginal gold plays. Tracker July 18, 2024 provides a complete explanation for my recommendation of Vista Gold Corp as a Good SDpec Value Favorite, while Tracker April 13, 2023 does the same for West Vault Mining Inc.
In the case of West Vault it may be too soon for an intermediate to make a bid for the company, especially given that the price must acceptable to West Vault's biggest shareholder, Sun Valley's Peter Palmedo. The stock is in something of a catch 22 situation caused by the fact that Palmedo would never agree to a price lower than 3-4 times the current price, but no intermediate producer can justify offering a 300% plus premium over market. The stock will reprice upwards on relatively low volume once the market has undergone a gestalt switch in terms of its perception of gold's long term price range.
Vista Gold Corp recently put out a news release which had two aspects. The first was about the South Cross Lode zone drilling in the northern part of the Batman deposit which they now know is a distinct zone different from the closely spaced but lower grade sheeted veins of the Batman zone. South Cross involves more widely spaced but thicker veins with better grade, and the goal of this program was to quantify how best to measure this zone which might have future underground mining potential which the Batman average grade of 0.77 g/t does not offer unless there is a very big real increase in the price of gold.
The aspect that initially troubled me was talk about doing a feasibility study for a smaller scale mining plan of 12,000-15,000 tpd that might have a CapEx of $400 million rather than the $1 billion plus for the 50,000 tpd scenario supported by the feasibility study updated in March 20024. The difference is that the smaller scale would produce 150,000-200,000 ounces versus 400,000 ounces annuallt. A couple years ago Vista Gold was being pressured by the financial establishment to bring in a partner to develop Mt Todd, which would be a disaster in terms of upside. For example, if a partner earns a majority interest in Mt Todd by funding CapEx, Vista Gold would be a dog for years waiting for a mercy killing by the partner. The smaller scale scenario broached by the recent news release left me wondering if Vista Gold is planning to turn Mt Todd into a "do-it-yourself" project, an approach that is anathema to Peter Palmedo whose Sun Valley is a major Vista Gold shareholder but not large enough to control its destiny.
During mid September Vista Gold participated in the Beaver Creek conference where a company does a 15 minute presentation, following which qualified investors sign up for a 25 minute private Q&A meeting with management. Vista Gold churned through 43 such meetings of which a quarter were corporate entities. The "corporates" consisted mainly of intermediate producers and their message was, "we like Mt Todd, but we will have a hard time persuading our overlords that paying a premium for Vista Gold and spending $1 billion CapEx to develop Mt Todd is a good idea, especially at this awakening stage of a secular gold bull market which is not yet pricing us as it would if it believed it was real. Can you make it smaller?".
With the majors trying to gobble up the intermediates, it will be at least a year before they start looking at low grade large gold output plays like Mt Todd. The majors are now stalking the intermediates and are not interested in billion dollar CapEx deposits like Mt Todd with grades below 1 g/t. The intermediates in turn are thinking of ways to avoid the premature clutches of a major. Since Vista Gold is trapped in this game of waiting for a secular gold market to be confirmed, management has decided to spend the time doing a feasibility on a smaller scale mining scenario with a $400 million CapEx an intermediate could handle. The company is currently doing internal tradeoff studies to see what is the best tonnage through scenario, which will be completely shortly. It expects to have the feasibility study done before the end of Q2 2025. Why would updating the cost numbers for a smaller scale mining scenario take 9 months? The feasibility study needs to be 43-101 compliant which requires third parties to crunch the various components of mine, and that does take time.
By announcing this smaller scale feasibility study Vista Gold has broadened the pool of potential buyers to include the intermediate producers. By creating options in the form of 200,000 ounce versus 400,000 ounce Vista more than doubles the pool of potential buyers without jeopardizing the the larger mining scenario which within a year could be within reach of even some of the intermediate producers. Meanwhile the intermediates can get serious about their due diligence so that if one of them bites first the others can jump into the fray with better bids. It is a strategic move by Vista Gold to encourage investors to buy the stock and move it into the $3-$5 range where the likely NPV for the smaller scale scenario matches the likely CapEx. By then if the secular gold bull market has awakened further, the intermediates will have posted gains beyond the 60%-120% they have garnered since the mid February lows and will be in a better position to use their paper as acquisition currency. The majors in turn will be trading at more than their current 40%-60% gains from their February lows and much more inclined to pursue the intermediates. Vista Gold has the most obvious potential to drag the KRO 2024 Favorites Collection into the money by the end of 2024. |
Vista Gold Corp (VGZ-AM)
Favorite
Good Spec Value |
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| Mt. Todd |
Australia - Northern Territory |
7-Permitting & Feasibility |
Au Ag Cu |
West Vault Mining Inc (WVM-V)
Favorite
Good Spec Value |
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| Hasbrouck |
United States - Nevada |
7-Permitting & Feasibility |
Au Ag |
Long Term Price Chart for Gold |
NPV/share Sensitivity to Gold chart for Vista Gold's Mt Todd project |
After-tax NPV Sensitivity to Gold Price for Vista Gold's Mt Todd project |
NPV/share Sensitivity to Gold chart for West Vault's Hasbrouck project |
After-tax NPV Sensitivity to Gold Price for West Vault's Hasbrouck project |
| Jim (0:31:11): What about Colonial Coal, your star Favorite for most of the year? |
Colonial Coal International Corp was my KRO Favorites star performer for most of this year, peaking at $3.47 on July 31 where it was up 86%, after which it abruptly developed a down trend that bottomed at $2.11 on September 27, close to the low of late June. At the end of the third quarter it was up only 28.4% at $2.44. It does, however, have potential to drag the 2024 Favorites Collection out of the mud if it attracts a buyout at $5 plus by the end of the year.
The stock developed an uptrend in July after the Canadian government approved the sale of Teck's Elk Valley coal assets to Glencore (see KW Episode July 5, 2024). In KW Episode April 26, 2024 I discussed a decision by Colonial Coal to retain Citibank to manage the sale of the company whose key assets are the Huguenot and Flatbed metallurgical coal assets in northeastern British Columbia. The hope was that an Asian steel producer would buy Colonial Coal in order to secure a stable long term supply of metallurgical coal.
The situation became complicated after BHP launched a hostile takeover bid for Anglo-American on April 25, 2024 which the South African government was not very excited about. Over the next five weeks the bid increased from $39 billion to $49 billion but BHP gave up on May 29 (see Reuters May 30, 2024 for a timeline of developments). Since then Anglo-American has scrambled to sell non-core assets such its De Beers diamond stake, the platinum group division and as its coal assets so that it could concentrate on its copper assets which were what BHP was seeking. Anglo-American initiated a formal sale process on July 9. This effort has focused on its coal mines in Australia, which was compromised somewhat when on June 29 the Grosvenor Mine caught fire. Anglo had set September 9 as the date when it would start receiving bids, but Anglo did not start receiving binding bids until September 26 and predicted it would be mid November before it will decide which of the final binding bids it will accept.
The planned Anglo-American coal sale helped stall the bidding activity around Colonial Coal's undeveloped assets in northeastern BC which have only been taken to the PEA level. The issue is that Anglo also has substantial undeveloped metallurgical coal assets in northeastern BC that partly surround the Flatbed and Huguenot projects (see the map). The market's view seems to have been that whoever buys the operating Australian mines will probably resell the BC assets, which in effect postponed latent appetite to acquire Colonial Coal and its Huguenot and Flatbed deposits. This may have triggered the downtrend that started in August.
This downtrend appears to be reversing because Anglo-American has already reduced the number of potential bidders it will entertain. One of the prominent bidders is Glencore, which has decided not to spin off its coal assets after shareholders protested. Glencore has both thermal and metallurgical coal assets, but was skunked in late 2022 when the Canadian government rejected its application to develop the Sukunka deposit in northeastern BC. If Glencore is the winning bidder for Anglo-American's coal assets it will likely develop the BC assets. That would be bad news for the Asian steelmakers hoping to pick up these "breadcrumbs". Now that Anglo's sale timeline is better defined other potential developers of metallurgical coal mines who are not in the running for the Anglo assets will be turning their attention back to other assets, of which Colonial Coal's assets are the ones for sale. CEO David Austin hopes to attract a bid in the $5-$10 range, higher if a competitive auction ensues. So I would not be surprised if by the end of 2024 Colonial Coal ends up the top performing KRO Favorite. |
Colonial Coal International Corp (CAD-V)
Favorite
Fair Spec Value |
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| Flatbed |
Canada - British Columbia |
6-Prefeasibility |
CM |
Map showing metallurgical coal assets in NE BC and location of Anglo-American properties |
| Disclosure: JK owns shares of PJX, Solitario and Vista Gold; Arizona Gold, Brunswick, Colonial Coal, Hercules,Patriot Battery, PJX, Solitario and Winsome are Fair Spec Value rated Favorites; Canalaska, Vista Gold and West Vault are Good Spec Value rated Favorites |
